Generators, gadget demands add to Sandy gasoline shortage woes

A girl holds jerry cans while waiting in line at a gas station on Thursday in Hazlet township, N.J. Superstorm Sandy, which has left millions without power or water, continues to effect business and daily life throughout much of the eastern seaboard.

Gas station lines streching a mile or more show the next challenge faced by those recovering from Hurricane Sandy. The fuel shortage is becoming severe: In New Jersey, 75 percent of stations were closed on Thursday, CNBC reported. New York City taxi companies began pulling cabs off the street due to the shortage. But all those gas cans you see drivers filling raise a question: Are gadgets partly to blame for the gas shortage?

To be sure, distribution challenges — such as blocked roads, power outages at distribution facilities and stations — are the main culprits. But pent-up demand created by gas-guzzling portable generators isn't helping. Powerful smartphones are useless without electricity, which means that millions of area residents can't make phone calls without gasoline right now.

Making matters worse: Generator sales have exploded in recent years. One company estimates that four times as many households have such backup generators today, compared to 1999.

Back then, storm victims suffering power outages simply lit candles and waited for power. Today, portable generators promise to keep life relatively normal even during extended outages, but not without a cost.

"There is a new baseline of demand," said Art Aiello, spokesman for spokesman for Generac Power Systems Inc., the nation's largest generator seller. "In the wake of a power outage, portable generators are what everyone goes to."

In some parts of the country, that means, literally, everyone, said research Manager Lucrecia Gomez of the Frost & Sullivan market research firm. She said generator sales soared in 2011, influenced by a series of weather-driven outages, and she believes that "in high-income areas, almost every house has at least one portable generator."

A good-sized generator that can run a refrigerator and a few other appliances in a house costs about $750, Aiello said — a small price to pay for a piece of normalcy, and to avoid ruined food, during a long power outage. But it also devours gasoline. It takes roughly a gallon of gas an hour to fuel such a generator with a moderately heavy load. That means it can burn through more than one auto tank full of gas in 24 hours. One way to look at it: homeowners without power in the northeast are using as much gas to power their homes as it would take to drive from Boston to Philadelphia, every single day. All those "road trips" create a lot of demand.

"It's absolutely a contributor" to the gas station lines, Aiello said, because generators need a lot of it. "That is one of the limitations of portable generators ... and we are having a run on gas now."

The portable generator market rise began with Y2K, Aiello said, and every disaster since has spurred adoption — there were sales spikes after Hurricane Katrina and the New York City blackout, for example. Before Y2K, only about 3 percent of American homes had generators, according to an investor presentation by Generac. By 2011, that figure had risen to about 12 percent nationally, the company estimated, and it figures to go higher this year. In an earnings report issued last week, Generac said sales climbed 25 percent last quarter compared to the previous year during the same stretch. And it expects sales to jump 40 percent for the year. (The company's stock soared 19 percent when Wall Street resumed trading on Wednesday).

Backup power may sound like a luxury for yuppies, and market penetration is higher in wealthier areas. But with the demise of landline phones, which always proved robust even in power outages, gas-powered generators are now considered essential for having access to the outside world during an outage. The National Center for Health Statistics says 27 percent of American households were "cell only," in 2010, with percentages higher in affluent areas, and the cord-cutting rate was torrid. By next year, landline penetration could fall to 50 percent.

"We're a very connected world. If folks use their cell as their primary phone, that's huge if you can’t recharge your phone," Aiello said. "The general fragility of the grid is a problem, but in severe weather we are asking more and more of it. We have an analog grid in a digital world."

Gadget users running on fumes can take a little comfort — but only a little — in the words of Sal Risalvato, executive director of the N.J. Gasoline, Convenience, Automotive Association. He told CNBC on Thursday that he expects the gas shortage situation to linger for a couple more days, but then resolve itself with a fairly quick domino effect.

“I think you’re going to see some easement over the weekend,” said Risalvato. “You’ll see normalcy next week. You’ll see things are going to happen all at once. Power is going to be restored. Roads are going to be clear. It’s like you’re drain is clogged and all of a sudden it’s unclogged.”